Even as Absa became the first lender to hold back dividends so far this reporting season, the boss of the country’s third largest bank by assets struck an upbeat tone about the economy.
“We, and I don’t think it was only us, have a sense that the underlying economy might have been a little bit stronger than most people thought,” said Daniel Mminele, a former Reserve Bank deputy governor who took the job mere weeks before the economy experienced its biggest shock since the 1930’s.
His comments about the economy, which shrank by 7% in 2020 after lockdown restrictions brought whole industries to a grinding halt, echoe those of his counterparts at FirstRand and Standard, which issued their earnings reports this month.
Mminele attributed the better-than-expected economic recovery to efforts by his former colleagues at the central bank.
The Bank swung into action in 2020 when it became clear Covid-19 was set to suffocate the economy, sharply cutting interest rates, entering the government bond market in order to allow institutional investors to cash in on their holdings and temporarily relaxing regulatory capital buffers for banks to keep credit flowing.
Absa expects the economy to rebound by 3.1% in 2021 but does not expect GDP to recover to 2019 levels until at least 2023, the company said in an earnings report.
“The idea of the recovery being stronger than initially thought also seems to have be borne out by the high frequency data going into this year that looks quite encouraging in terms of activity, but we are very cautious to extrapolate too quickly because we just don’t know how sustainable this can be,” said Mminele.
Mminele, who joined the banking group as the permanent successor to Maria Ramos, says now is not the time for policymakers -- who have come under fire for their slow place in pushing through structural reforms to boost economic growth -- to resort to bad old habits.
“The key issue is that we don’t emerge from this crisis and find ourselves reconnecting with the old problems that we had around structural reforms, around making sure infrastructure, financing and development happens sufficiently, and more importantly, which is a big drag, and which has a huge impact on confidence – fighting corruption.” Mminele said.
Mmnele was speaking to Business Day shortly after the company issued the annual earnings report, which may have disappointed some investors who had been hoping it would follow in the footsteps of two blogger rivals FirstRand and Standard Bank in paying dividends. Nedbank is yet to report earnings.
“We felt it was prudent to not declare any ordinary dividends,” he said, citing the need to build cash reserves to navigate risks flowing the pandemic and associated lockdowns.
The bank said it would resume shareholder rewards after the half-year results in June, but will gradually increase the percentage of earnings it pays out as a dividend starting at 30% and gradually returning to the pre-Covid ratio of 50% over the medium term.
Absa reported a decline in headline earnings of 51% for the full year to R8bn or R9.46 per share, underscoring a wave of distress sweeping household finances as charges related to skipped credit repayments jumped 163% to R20.6bn.
Update: March 16 2021
This story has been updated with additional information.
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